Want To Invest In A Post-Pandemic Boom?
FinTech startups in Massachusetts, Vermont And Indiana offer a chance to boost Main Street businesses while making a decent return
MainVest allows investment in small, Main Street businesses. Photo: Nina Roberts
Published on Times of Entrepreneurship on October 20, 2020
The seed for local investing platform MainVest was planted in Nicholas Mathews when he worked at Uber. He was one of the company’s first 30 employees. In 2013 while researching hyper-localized marketplaces in and around cities like Providence, R.I. and Worchester, Mass., Mathews found himself going down “economic development rabbit holes.”
“It really flagged the challenges of small businesses,” says Mathews, “which are such an important building block in localized economic development.” He realized that the number one challenge for Main Street businesses in these geographic areas was access to capital. “Why isn’t there a way for people to be able to just directly invest into these businesses?” he wondered.
He went on to found MainVest in 2018. One of a handful of local investing platforms in the United States, it allows anyone to invest, often as little as $100, in local businesses. “I would say 80% of our growth has come in the last 6 months,” says Mathews. While MainVest’s growth spurt began before the pandemic, he notes that the pandemic shutdowns are likely a driving force.
Great Scott Taps Sentiment
For instance, MainVest currently has a campaign for Great Scott, an existing music venue outside Boston, Mass. The owner’s statement reads, “This campaign is designed to initially secure the lease, and 6 months rent to bridge the gap between the beginning of the lease and the time the ban on mass gatherings is lifted.”
When thriving Main Street businesses were the norm, there were more local banks, and no ecommerce or gigantic big box stores. Today’s Main Street business owners and customers are discovering and using new tools, like local investing, to help small businesses survive.
MainVest was enabled by a feature of the JOBS Act, Title III. The May 2016 legislation allowed non-accredited investors, regular individuals, to invest in private companies; these companies were also allowed to publicly solicit.
“If you look at all the headlines in 2016, this was just being talked about as equity crowdfunding,” says Mathews. “The regulations were really designed so that people could invest in early-stage tech companies,” Mathews explains, “the next Uber, the next Airbnb.”
What got Mathews jazzed to eventually leave Uber in 2018 and launch MainVest, was that the new regulations, albeit unintentionally, could be used to raise capital for brick and mortar businesses: pizza shops, grocery stores, wine bars, distilleries, not just early tech startups.
He partnered with cofounders Ben Blieden, an expert on security structuring and advanced finance; they met as students at University of Massachusetts, Amherst, and engineer Felix Le Dem. MainVest, based in Salem, Mass., has raised $3 million in venture capital.
Typical Returns
MainVest is currently the most active local investing platform, with 30 current campaigns. It’s raised capital for 120 businesses since launching, according to Mathews. Investors can earn 10-20% annually on their investment typically over four-six years, through revenue sharing notes— if businesses succeed. If businesses fail, investors lose their money.
Campaign targets typically range from $15,000 to $100,000. Consumer, amenity-based Main Street businesses like bakeries, breweries, yoga studios, restaurants, coffee houses, where investors can experience their investments, tend to be the most successful campaigns on MainVest.
Some open campaigns on MainVest have already reached their targets; Ghostface Brewing in Mooresville, N.C., has raised $150,000, blasting past its target of $50,000; Great Scott exceeded its target of $150,000, raising $192,700.
Sol Cinema Café, a cinema focusing on Black film and coffee shop in Harlem, New York City, aims for $20,000. It has raised $12,400 so far. Other businesses include a cooking school, a cookie bakery, restaurants and specialty grocery stores.
MainVest is a viable funding option for business owners who don’t have savings, or a rich and generous family member, or feel debilitated at the thought of crowdfunding, or don’t qualify for (or don’t want) a bank loan, or refuse to go into debt using a credit card.
It also ties the success of small businesses more closely to their communities.
Mathews notes that women and people of color often face additional systemic challenges around getting institutional capital. “Being able to take it in their own hands, go to the market, and not be beholden to what could potentially be some kind of bias, conscious or unconscious, with a single, likely, white guy underwriter sitting in a room,” says Mathews of a successful MainVest raise, “is a good thing.” According to Mathews 58% of the businesses that have raised capital on MainVest are women-led; about 38% Are owned by people of color.
Christopher Gandsy, owner of DaleView Biscuits and Beer in Brooklyn, needs capital to expand his gluten-free buttermilk biscuit and homebrewed beer business. Gandsy knew he wouldn’t qualify for a bank loan. When MainView was suggested by the Nostrand Avenue Merchants Association as an alternative, the community aspect of local investing appealed to him. “I like the idea of people who invest in me,” says Gandsy, “they’ll be going through the journey with me at least five years.”
Many of Gandsy’s investors are customers and or neighbors, which he calls heartfelt. “Like, wow” laughs Gandsy, “they actually like us!” So far, Gandsy’s MainVest campaign has raised $81,000, shooting past the target $75,000 goal.
A Foothold Against Chains
Local investing could help individually owned Main Street establishments compete for a foothold with chain stores. At least, local investing may offer a piece of the puzzle. The philosophy behind local investing is to keep wealth circulating within a community, be it a small rural town, suburb, or a city neighborhood.
The local investor typically becomes an active participant in the business. In addition to the actual dollar investment, they’ll likely visit and promote the Main Street establishment they’ve invested in.
Mathews gives the example of a brewery, a type of business that has been successful and popular on the platform. If 200 locals invest in a brewery, suggests Mathews, “As that brewery grows, rather than sharing its wealth with a corporation or institutional banking partner, they’re sharing that wealth back to the community.” Mathews calls it “a closed-loop capital ecosystem.”
Mathews notes that the economic development formula over the past 10-15 years has been for local officials to focus on private equity, developers, luxury housing, a Whole Foods, Banana Republic, or perhaps a fancy paper store. The new jobs in a community are good, but the chains also cause displacement of existing locals. Investing locally though MainVest, which Mathews considers a mission-driven company, is a way to pump money into a community without causing displacement.
MainVest is not the only such platform. Louisa Schibli cofounded Milk Money Vermont in 2016; it’s a local investing platform that focuses on raising capital for businesses within the state, from an organic creamery to a company making backyard sap evaporators for DIY maple syrup production.
“I do think that times are changing, there is definitely a bigger focus on impact investing, investing local,” says Schibli. When talking to potential investors, Schibli advocates investing locally, even if it’s just 1 to 5% of their investing funds.
Indianapolis Has LocalStake
LocalStake, based in Indianapolis, launched in 2014. It was in operation prior to the Jobs Act because it billed itself as a broker dealer, rather than a funding portal.
Its focus is also on brick-and-mortar retail businesses like distilleries, breweries and eateries. “Those tend to have the least options when it comes to raising traditional capital,” says cofounder Ryan Flynn, adding, “those also tend to be companies that that have inherent communities built around them, which is a key piece to the actual fundraising activity that takes place.”
Ogden’s Own Distillery in Utah (makers of the scandalously-named Five Wives Vodka) raised $1,900,010 on LocalStake, far exceeding its $50,000 goal. The average LocalStake raise is $70,000 to $400,000.
But does local investing sound too good to be true? Is local investing masquerading as souped-up crowdfunding or even flat out charity?
“That feeling is a challenge that we face,” says Mathews, which he thinks comes from “a little bit of cognitive dissonance.” He notes that most people feel like they can either support local, or build wealth. “It doesn’t feel like you can do those at the same time,” says Mathews.
Flynn of LocalStake says he’s found investors to be somewhere in the middle of the two extremes: altruistic and socially motivated to an investor who just wants a financial return.
“Yes, they’re looking for a return,” Schibli of Milk Money says of local Vermont investors, “but they’re also looking for, you know, a social return too.”
Each local investing platform, as well as the individual business campaigns have their own formula for raising capital, from equity to revenue sharing notes, and investor repayment plans.
All of MainVest campaigns’ investor return plans are custom designed and clearly stated on the businesses’ “Data Room” pages. Variables include the anticipated multiple on an investment, typically 1.2 to 1.7, the quarterly repayment percentage of the business’s gross earnings, anywhere from 1 to 9%, and the length of time a business has to pay back investors.
Platforms earn income in different ways, from various fees the business owners pay or a small percentage of successful raising rounds; MainVest takes a one-time 6%.
While Mathews doesn’t want to “give away too much of the secret sauce,” about MainVest’s booming campaigns, he attributes part of his success to timing. Launching in 2018, as opposed to 2016, when many local investment platforms launched, like the dormant-looking Hatch Oregon, allowed for superior technology and banking software. The improved technology cut costs that might have been prohibitive for MainVest just two years earlier. He’s also become a securities regulations expert, which is an enormous, behind the scenes part of MainVest.
While Darwinian capitalists might say if the marketplace is pummeling Main Street businesses, then they should die. But for those who value the social and economic contributions of small businesses and call a world with only corporate-owned chains dystopian, it’s time to think about where they’re spending their money.